Ruchi SrivastavaThe Reserve Bank of India (RBI) will announce its December 2024 Monetary Policy this week, and there is much speculation about possible changes to the repo rate and other measures. Experts think the RBI will likely keep the interest rate unchanged and may lower its growth forecast due to weak GDP numbers from the second quarter. This decision comes at an important time as the economy faces challenges with inflation and growth, making it a key event to watch.
The six-member Monetary Policy Committee (MPC), led by the Reserve Bank Governor, is set to meet from December 4 to 6, 2024. Governor Shaktikanta Das will announce the panel’s decisions on December 6. Let’s delve into this Blog to learn more about the updated Interest rates and what Experts have to say about them.
Given the current economic challenges, the Reserve Bank of India’s (RBI) upcoming policy announcement is highly significant. With inflation remaining a concern and signs of slowing growth, the Monetary Policy Committee (MPC) faces the task of balancing these competing demands. Keeping the repo rate unchanged would indicate a cautious stance to maintain economic stability while avoiding further inflationary pressure. Additionally, a potential downgrade in the growth forecast may highlight the RBI’s recognition of the weaker economic performance in the second quarter. This meeting is expected to shed light on the central bank’s approach to navigating these uncertain economic conditions.
What is RBI Monetary Policy?
The Monetary Policy of the Reserve Bank of India (RBI) involves managing the money supply in the economy to achieve key economic goals. The main objectives of this policy are to control inflation and promote steady economic growth. By regulating the availability of money and credit, the RBI seeks to create a favorable environment for long-term economic development.
Expected Changes in the Next RBI Monetary Policy December 2024
- The Reserve Bank has kept the repo rate at 6.5% since February 2023, and Madan Sabnavis, Chief Economist at Bank of Baroda, said that with the uncertain global situation and inflation averaging around 5.9% over the past two months, it makes sense for the RBI to keep the repo rate unchanged.
- The Reserve Bank is expected to start lowering interest rates soon. However, with retail inflation recently rising above 6%, the RBI might have limited room to make such cuts, according to a PTI report.
- According to Madan Sabnavis, the RBI is likely to revise its projections for both inflation and GDP. Inflation has been higher than expected in Q3, while GDP growth in Q2 was much lower than anticipated. It will be interesting to see the updated projections, he noted in a PTI report.
Objective of Monetary Policy in India
1. Stabilizing Price – One of the main goals is to keep inflation low and stable, which helps preserve the currency’s purchasing power and provides economic certainty.
2. Growth of Economy -The RBI strives to support sustainable economic growth by ensuring sufficient credit is available to key sectors, thus boosting investment and consumption.
3. Financial Stability: Maintaining a stable financial system is essential for continued growth. The RBI works to manage risks within the financial sector to avoid disruptions.
4. Stability in rate of exchange – The RBI aims to stabilize the Indian Rupee’s exchange rate, reducing excessive fluctuations and supporting international trade and investment.
5. Employment Generation: By encouraging economic growth and investment, the RBI’s monetary policy indirectly helps create jobs and promotes overall economic well-being.
Which are the tools of Monetary Policy?
The RBI employs different tools to carry out its monetary policy, which can be divided into two primary categories: Quantitative Tools and Qualitative Tools.
1. Quantitative Tools
- Repo Rate: Repo rate is the interest rate at which the RBI lends money to the Commercial banks. A lower repo rate makes borrowing cheaper, stimulating spending and investment, while a higher rate helps control inflation.
- Reverse Repo Rate: The interest rate at which the RBI borrows money from banks, helping to absorb excess liquidity in the banking system.
- Cash Reserve Ratio (CRR): The percentage of abank’s total deposits that must be kept as reserves with the RBI. A higher CRR reduces the amount of money available for banks to lend, affecting the money supply.
- SLR – SLR stands for Statutory Liquidity Ratioisthe minimum percentage of a bank’s net demand and time liabilities that must be held in liquid assets. Like CRR, changes in SLR impact the money supply.
- Marginal Standing Facility (MSF): A facility that allows banks to borrow overnight funds from the RBI at a higher interest rate than the repo rate, typically used in emergencies.
2. Qualitative Tools
- Gentle Persuasion – The RBI employs persuasive communication to encourage banks to follow its policy objectives.
- Direct Action: The RBI may take immediate measures against banks that fail to comply with monetary policy regulations.
Final Thoughts
The RBI’s December 2024 monetary policy decision will focus on balancing inflation control with promoting economic growth. Although most expect no change in the policy, bank’s outlook and guidance will influence market trends in the coming months. Keep an eye out for live updates on the RBI’s announcement and its impact on the economy!
